Growth in Demand

The recent new home sales data is at levels last seen in 2006, with monthly supply back down to the low levels seen the last time new home sales data was really strong. For the first time in more than a decade we have the demand needed to prompt builders to really push housing starts. This growth in demand is consistent with what some have been saying for many years – if interest rates stayed low, good housing demographics in the years 2020 to 2024 would substantially drive up demand for housing, including new home sales. The monthly supply for new homes is back down to the levels we saw when demand for new homes was good and builders responded with increased housing starts. Except this time around, we do not have speculation buyers and a credit bubble — just good demographics and low interest rates.

Some are making the erroneous assumption that the COVID-19 pandemic is the main driver of housing demand because workers are flocking to the suburbs and buying bigger homes to accommodate working from home, home schooling, home gyms and the like. But it doesn’t square with the data. Back in February 2020, before COVID-19 hit, housing starts were showing near 40% year-over-year growth and mortgage demand for housing was good. The pandemic drove starts down temporarily, but it could not kill off the organic demand due to the one-two punch of good demographics plus low interest rates. These two factors are what will pave the way for housing starts to continue to grow.

Source: HousingWire